Centuri Holdings, Inc. (CTRI) Q1 2026 Earnings Report, Transcript and Summary

Greetings, and welcome to Centuri's First Quarter 2026 Earnings and Strategy Overview Call. [Operator Instructions] It is now my pleasure to introduce your host, Nathan Tetlow, Vice President, Investor Relations. Please, you may begin.

Thank you, Liz, and hello, everyone. Yesterday, we issued and posted to Centuri Holdings website our first quarter earnings release and investor presentation. In addition, we have posted to the website a Vision One Centuri presentation that will be referenced during this call. Please note that on today's call, we will address certain factors that may impact this year's earnings and provide longer-term guidance. Some of the information that will be discussed today contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements are as of today's date and based on management's assumptions and are subject to several risks and uncertainties, including uncertainties surrounding the impacts of future economic conditions and regulatory approvals. A cautionary note as well as a note regarding non-GAAP measures is included in yesterday's press release in the investor presentation and in our filings with the Securities and Exchange Commission, which we encourage you to review. Also provided are reconciliations of our non-GAAP measures to related GAAP measures. These risks and uncertainties may cause actual results to differ materially from statements made today. We caution against placing undue reliance on any forward-looking statements, and we assume no obligation to update any such statements, except as required by law. Today's call is also being webcast live and will be available for replay in the Investor Relations section of our website shortly after the completion of this call. On today's call, we have Chris Brown, President and Chief Executive Officer; and Greg Izenstark, Chief Financial Officer. In a moment, Chris will discuss our strategy. But first, I'll turn the call to Greg to review the first quarter results. Greg?

Thank you, Nate, and thank you, everyone, for joining us today. In the first quarter, we delivered exceptional results, highlighted by significant year-over-year growth, including revenue up 31%, base revenue up 29%, gross profit up 76% and base gross profit up 96%. For the quarter, we reported revenue of $723 million and base revenue of $689 million, gross profit of $36 million and base gross profit of $28 million. Our base gross profit margin was 4.1% for the quarter, up from 2.7% last year and on a trailing 12-month basis was 8%, a 100 basis point increase from the same measure last year. Net loss attributable to common stock in the quarter was $9 million or $0.09 per share compared to a loss of $18 million or $0.20 on a per share basis last year. Adjusted net loss in the first quarter was $2 million or $0.02 on a per share basis compared to a loss of $11 million or $0.12 per share in the same quarter last year. And our adjusted EBITDA for the quarter was $33 million, representing a 35% increase from last year. Net cash used in operating activities for the quarter was $35 million and free cash flow was negative $54 million, both of which were driven primarily by the timing of changes in working capital. First quarter free cash flow was consistent with our expectations. And for the full year, we continue to expect free cash flow to exceed $60 million. SG&A for the quarter was $33 million, an increase of about $6 million year-over-year. Approximately $2 million of the increase relates to the timing of professional fees in support of our strategic initiatives, with the remaining increase consistent with the growth of the business. As a percent of revenue, SG&A is down 25 basis points versus a year ago. As we previously stated, we anticipate that SG&A will be around 4% of revenue for the full year. We ended the quarter with a net debt to adjusted EBITDA ratio of 2.7x, which was down from 3.5x a year ago. And we continue to forecast net debt to adjusted EBITDA of around 2x by year-end. Now to our segments. U.S. Gas revenue was $284 million, an increase of 44% compared to 2025. The increase was driven by progress on bid works, bid projects and our actions to secure work that is less impacted by weather. Gross loss for the quarter was $6 million, a 57% improvement from a $15 million gross loss last year. The year-over-year improvement is a testament to our work addressing seasonal impacts, particularly considering the challenge that winter storm Fern posed, which not only impacted work in the Northeast, but also briefly slowed work on a new multiyear MSA in Texas. Canadian operations revenue was $60 million, up 51% from last year. The increase is primarily from the inclusion of Connect Atlantic Utility Services in the current year results. Operational performance in this segment remains strong against a solid demand backdrop. As expected, gross profit margin was down slightly to 15%, driven by the inclusion of Connect. Union Electric base revenue was $199 million, an increase of 14% year-over-year. Base gross profit margin was 8.7% for the quarter, up 200 basis points from a year ago. Growth has been fueled by robust activity in projects serving industrial end-user customers, particularly substation infrastructure and data center-related work. Non-union electric base revenue was $151 million, an increase of 25% over last year. This growth reflects a significant expansion in MSA activity. Base gross profit margin was 6.3% compared to 8.7% in the prior year, driven by activity ramp early in the year on an MSA contract, resource allocations to on-system storm restoration work and seasonal weather impacts in January and early February. Activity and margins were back to normal by the end of March. Moving on to our commercial update. In the first quarter, we delivered bookings of $1.3 billion or a 1.8x book-to-bill ratio. Awards included $900 million of MSA renewals, $180 million of new or growth MSAs and $250 million in bid work. Momentum has continued into April as we have approximately $2 billion of pending bids outstanding, including nearly $200 million of data center work that is in negotiations. For the year, we are targeting a 1.1x to 1.2x book-to-bill ratio. Our focus remains on securing higher-margin work and building on the backlog for 2027. Lastly, we are reiterating our full year 2026 guidance. As a reminder, base revenue and base gross profit are non-GAAP measures that exclude the impact of storm restoration services. For 2026, we expect base revenue of $3.15 billion to $3.45 billion and base gross profit of $255 million to $285 million. Revenue, adjusted EBITDA, and adjusted net income are measures that include storm restoration services. Guidance for these measures include storm restoration services using a 3-year average of $88 million in revenue and $28 million in gross profit. For 2026, we expect revenue of $3.24 billion to $3.54 billion, adjusted EBITDA of $280 million to $310 million, adjusted net income of $55 million to $75 million; and lastly, the net CapEx outlook at $75 million to $90 million. I will now turn it to Chris for the strategy discussion. Chris?

Thank you, Greg, and hello to all, and thank you for joining the call today. I'll be discussing our strategy and multiyear financial outlook, and I'll be referring to the Vision One Centuri slide deck that was posted on our website late yesterday. I've now been CEO for about 17 months, and I'm extremely proud of what has been accomplished in that very short time and the path that we are on as demonstrated by the strength of the first quarter results and the incredible year-over-year growth. Centuri has more than 115 years of successful operating history, as we can see on Slide 2, has a long-standing relationship and reputation as a trusted, high-quality and above all safe infrastructure services partner. Everything we're building now is on the solid foundation of decades of operating history and industry leadership paired with intentional decisions aimed at building a lasting and successful future. We will start with purchase of our largest operating company, NPL, in 1996 through to the mid-2000s, the company has significantly achieved growth from geographic expansion with a focus on servicing regulated utilities and building strong customer relationships through master services agreements. In 2012, the company reached $500 million in revenue and just 3 years later, revenue doubled to $1 billion. From there, the company continues to grow through strategic acquisitions that diversify the service capabilities and the reach of our business. After joining Centuri in late 2024, my assessment was clear; nothing was broken from within the business. That view remains the same. My initial focus was centered around breaking away from certain legacy priorities and practices born under a utility parent, establishing a growth mindset, installing growth-related KPIs across the organization, driving capital efficiency and unifying the company around a clear vision, what we now call One Centuri. Simply put, we all have a common purpose, strategic direction and a common set of values. To advance the One Centuri vision, the leadership team began a strategic evaluation last year with several areas of focus, assessing our end markets, benchmarking all our peers, identify the measures that drive shareholder value and establish credible top-tier goals, advanced growth initiatives supported by our capabilities and the end markets and enhance internal functions to enable sustainable growth, specifically focused on resource planning and risk management. In 2025, we began implementing the One Centuri approach, which proved to be a true inflection year for Centuri. On Slide 3, we highlight some of what we achieved, including becoming fully independent, reducing our net debt to adjusted EBITDA to 2.5x, commencing the fleet initiatives and achieving records for bookings, backlog and revenue. Beyond the tangible results of 2025, I'm also proud of the way the organization emboldened commitments to our customers while also embracing the changes necessary to set Centuri on a path for value creation. We are all very well positioned to execute against a favorable market backdrop and look forward to delivering for our stakeholders. Moving to Slide 4. We are anchored by 4 objectives: top-tier earnings growth, top-tier revenue growth, being an agile, integrated customer-facing organization and establishing a world-class resource delivery led organization. These objectives were established based on the value drivers we believe matter most to our stakeholders. While scaling the business will drive revenue growth, long-term shareholder value creation will be achieved through earnings growth. Retaining existing business, expanding relationships and secure new customers are all about how we execute and engage with our customers. This is the strength of Centuri and will remain core to our culture. To enable the growth, we will execute a plan to build further on our industry-leading workforce, more on that later. To set the stage, let me first review the end markets, starting on Slide 5. The North American energy infrastructure build-out represents a true tailwind for Centuri. It's durable and long term in nature. Between grid modernization, electrification expansion, gas infrastructure replacement and power demand for industrial and data center customers, the opportunity set for Centuri is evident. None of this should be used to anybody on this call. Slide 6 is the big picture view. We started with an overall analysis of our core gas and electrical T&D end markets and the relevant adjacent end markets. This represents over $2 trillion of cumulative spend from 2026 through to 2029. Our next step in the process was to drill into the data and capture those areas that were relevant to Centuri. This results in a true Centuri total addressable market of $625 billion over the next 4 years. For perspective, our current $13 billion pipeline and $6.5 billion of record backlog reflects only a fraction of this opportunity. On an annual basis, the opportunity pipeline is less than 10% of Centuri's total addressable market. Importantly, the market data and our analysis reinforce that we do not need to change in direction or we do not need to pivot differently. Instead, we are all well positioned to drive profitable growth through our existing capabilities, expanding our scale and geography and selectively pursuing market supported initiatives. Our operational leadership has all confirmed through the process that the end markets fully underpin our growth targets as we've laid out. Moving to Slide 7. This breaks down the core end markets into electric and gas across transmission and distribution. In short, the forecasted 8% CAGR to 2029 confirms the tailwinds we've been seeing and expect moving forward. In nominal dollars, the electric market offers the largest opportunity with transmission expected to grow a bit faster than the distribution segment. On Slide 8, we highlight the adjacent markets. Again, the data suggests further tailwinds and ample opportunity to capture more market share. It's no surprise that data spend exhibits the highest percentage growth, but each of these markets have the size and growth qualities that makes some very attractive opportunities for Centuri as a group. Now let's get into our strategy on Slide 9. Our strategy is designed to be sustainable, successful through market cycles, driven by choices rather than acting out of necessity, and it maintains our low risk profile in the work we execute as we expand our business. We've laid out our ambition on the slide, which ultimately centers around delivering exceptional value to all stakeholders, being customers, employees and shareholders. To achieve this, we will focus on 3 fundamental principles. Firstly, we will protect and deepen the core. We'll remain diverted to our long-standing relationships with regulated utilities, executing with the quality, reliability and safety they expect and trust us to deliver. We will expand relationships with existing customers, pursue increased MSA work through new customer relationships, cultivate cross-selling opportunities and continue to lean into bid work by leveraging our core capabilities in our well-defined adjacent markets. Second, we will pursue initiatives to grow the portfolio. These growth initiatives build on our existing capabilities, existing services and the strength of our organization and are supported by strong end market demand. In parallel, we will pursue tuck-in acquisitions that are accretive to our core business or directly advance our targeted growth initiatives. And lastly, to enable long-term growth, we will sustainably scale the enterprise. We will do this by achieving industry-leading talent acquisition capabilities, driving operational excellence through standardized performance management and enhancing our risk management practices. The result of this work will be 10% to 15% compounded annual growth rate in base revenue through 2029 and an improvement of 70 to 170 basis points in base gross profit margin. On Slide 10, we dig into the first principle, protect and deepen the core. This is the foundation that defines Centuri today and also our future. Across both gas and electric, MSA work is the cornerstone of Centuri. These agreements represent stable, long-cycle opportunities, and we are deeply committed to protecting and strengthening this core. Our 100% MSA renewal rate is a powerful validation of the trust we have earned through relationships with our customers over many years and in many cases, decades. When it comes to growth, our priority is securing new and expanding scope of work from existing customers by leveraging our operating track record, the execution consistency and the reputation we have earned. We are focused on adding new customers, again, leveraging our reputation and relationships through cross-selling and our One Centuri go-to-market approach. Our ability to offer integrated solutions across the value chain positions Centuri as a differentiated service provider and partner to our customers. Looking back to '25, we booked $900 million of new or expanded scope MSAs. And in the first quarter this year, we booked a further $180 million. We absolutely intend to keep this momentum going as we move into subsequent quarters and subsequent years. At the same time, big work opportunities are abundant and represent meaningful incremental growth and margin upside. For us, big work is a natural extension of MSA work. It's the same services utilizing the same capabilities and equipment, just executing on a different contract structure. This work not only originates from our well-defined adjacent markets, but also from many of our existing MSA customers who often have projects that fall outside the MSA scope. As mentioned many times before, the data center market is our fast-growing adjacent market. Data centers offer a range of work scopes well suited for Centuri. And since the start of 2025, we've already secured $170 million of data center-related work. Additionally, we continue to evaluate and bid for approximately $1.5 billion of further data center work. We see this as a market with strong multiyear growth potential and attractive margin characteristics. In summary, MSA work is our core today and will continue to be our core. We are focused on deepening and expanding that core through new and broader MSAs, while bid work serves as a growth engine and is margin accretive. This is protect and deepen the core. Moving to Slide 11. We have identified several initiatives to enhance our growth rates and drive margin expansion. Each initiative is supported by end market data and represents an extension of our core capabilities. Let me start with electric transmission. Today, we have electric transmission capabilities in both our union and nonunion electric businesses, generating less than 10% of our annual revenue. Compare this to the $150 billion of utility spend on electric transmission work expected over the next 4 years, and it's clear this is an area we are under serving. And we've recently had a number of customers driving us to build further capability and execute more of these services within this segment. With grid modernization, significant work for us and the build-out of high-voltage lines as an opportunity for Centuri to capture transmission projects in the low to mid-voltage range. Our focus will be on projects under the $200 million in size. This is a size where Centuri has the scale, track record to compete and win against smaller regional players, while also remaining below the typical size targeted by larger industrial players. In addition, we offer customers a fully integrated solution across transmission line tower construction, substation work, interconnects and battery storage. This is true differentiation for Centuri. While larger than our current portfolio of transmission projects, we have confidence in our ability to execute based on our track record of core capabilities over many years. Next, we will expand our service offerings into underserved geographies and areas that need more scale. Our One Centuri go-to-market strategy will facilitate this initiative. Our operating companies no longer will act in silos. Instead, we approach customers with a full suite of services across gas, electric, union and nonunion. Several recent awards highlight the success of this approach. First, we were able to leverage a long-standing relationship with a premier customer in Canada to make introductions with the Midwest gas utility who is owned by the same parent company. This introduction, coupled with the Google with them through many years of quality service has led to a new multiyear FSA award across the U.S. In another example, a recent electric award for a Florida customer was secured through relationships and introductions originating from our gas business. This represents our first work for the utility customer and nice entry into the Floridian market. I absolutely expect more examples like these to materialize over the coming weeks, months and into the subsequent years. On the slide, we've highlighted a few areas where we see logical geographic expansion, including the Southeast for gas, the Midwest for electric and in Canada, where we are targeting expansion of our new electric capabilities into the Ontario region. Lastly, we believe there's an opportunity to exceed expectations on our new bid work. This can be achieved through business development efforts to generate more opportunities from the total addressable market or just by exceeding our historical win rates. We also aim to do more for existing customers, offering them access to all of our services and being their partner of choice. The strength of the market is unlike anything I've seen in my career. And as the market data supports, we believe this trend will continue at least through the end of the decade. Now let's shift to Slide 12 for the other leg of grow the portfolio, which is M&A. We operate in a fragmented industry and believe there are strong merits to consolidation and benefits of scale. At Centuri, we've established several attributes we look for in tuck-in acquisitions. In terms of geography, we're focused on the Midwest and Southeast and in terms of scope, electric services, in particular, transmission is a focus. While we are pursuing these areas organically, the right acquisition could prove immediate -- the right acquisition that can provide immediate scale from which to grow is attractive to us. Strategically, our focus is not on acquisitions that need to be fixed. Rather, we target companies that match Centuri's operating excellence, our culture and bring already established customer relationships. We look for opportunities that add to the foundation of Centuri, providing more scale and scope for the core business to grow. Slide 13 highlights the Connect acquisition that we closed last year. It's the perfect case study for what we look for in an acquisition. Connect fill 2 needs. It gives us an electrical T&D services platform in Canada and entrance into the Atlantic region of Canada. Connect has a strong track record of operations and has existing long-term relationships with high-quality customers. Focus now is leveraging our existing gas relationships to grow the Connect platform into the Ontario region. Just a few months into this acquisition, we are already gaining traction on the business development side and expect to have positive updates on these efforts in the coming quarters. Now turning to Slide 14. We believe the execution of our strategy supports a conservative base revenue compounded annual growth rate of 10% to 15% through 2029. We believe we have the strategic direction and plans in place to deliver this top-tier revenue growth. In order to achieve our targets and scale the organization, we must advance our enabling functions and our structure. On Slide 15, we highlight 3 areas of ongoing focus. First on the talent side, we've added several key additions to the team in 2025, a Head of Fleet and a President of Gas. In addition, we launched development efforts and began building out our talent pipeline. We anticipate adding more leadership talent within the coming year. Second, on fleet, we shifted away from the historic practice of purchasing all equipment to a balanced funding plan that aims to be 50-50 lease versus buy. This allows us to generate more free cash flow and be more strategic with our equipment sourcing. We are also well underway with our analysis and implementation of fleet utilization improvement plans, which will drive margins higher and improve efficiency across the entire organization. Lastly, we established a sales pipeline, which now houses all opportunities that our business development team is evaluating and preparing to bid. The pipeline allows us to track win rates, see trends more quickly, be more accountable and forecast more accurately. Now moving to Slide 16. A critical aspect to enable our strategic execution is our ability to source human capital. Centuri is starting from a solid platform. We have many programs in place, including local relationships and partnerships with colleges, trade schools and vocational programs. We also have an apprentice program in our nonunion electric segment that is currently training more than 800 people. We do an excellent job sourcing our labor needs today, but we must think ahead and take our platform to the next level. To that end, we are already underway of building an integrated group-wide data-driven workforce forecasting tool that will interface with our sales pipeline. This interface will allow us to stay ahead of growth. We'll be able to identify specific skill set needs for specific projects and specific regions over long time frames. Rather than just knowing we need to add head count, we will be precise and strategic with our sourcing. Our goal is to ensure that each job has the right people at the right time. We'll also use the tool to identify new geographies to establish as resourcing hubs. This program, along with our other deliberate work to upskill the workforce and our mix of union and nonunion labor will provide Centuri the flexibility to support expanded MSA, new bid work and expansion into new geographies. We expect to have this tool fully implemented during the course of this year. Developing a group-wide resourcing delivery plan is critical to our success. We will be investing in our people and our workforce pipeline in a far more structured and focused way. And as we grow, we'll seek to capture and share lessons learned across the business to up-level the entire organization through a formal knowledge network. This culture of continuous improvement will further differentiate us for our customers and enable us to deliver true value-added solutions. Another critical aspect required to achieve our goals is managing the risk that comes with growing our business. We outlined this on Slide 17. We are currently in the process of establishing an enterprise-level project management office that will guide the organization through consistent good practices, standardization of controls, data analysis to drive margin improvement and continuous learning. This effort will leverage the existing talent by consolidating our operating company PMO competencies that already exists into a groupwide PMO. We have full line across our operating company leadership team regarding the critical nature of this function, and we expect to have this group up and running during the course of this year. Now let's jump to the financial outputs beginning with Slide 19. In 2025, our business mix was about 78% MSA and 22% bid work. And our split between gas and electric was 53% gas and 47% electric. As we've talked about, we expect bid work growth to outpace MSA growth over the next few years. And we also see more opportunity on the electric side, recognizing that both electric and gas end markets are growing. When we project out to 2029, we anticipate that bid work to grow approximately to 35% of the business and the gas and electric split to be equal at 50-50. Importantly turn to Slide 20, where we provide base revenue growth and base gross profit margin targets by segments. These targets do not include impacts from potential M&A or storm restoration work. For U.S. gas, we are targeting base gross profit margins between 7% and 8% by 2029, reflecting our action plan to fully mitigate the seasonal impacts of the business. Consistent with the mix shift, growth in the Electric segment is expected to outpace the gas segment. On Slide 21, we outlined both the progress made and expectations for our corporate level gross base profit margin. I remind everyone in 2025, we delivered significant improvements from 2024 going from a 6.9% to 8% base gross profit margin. As we look out to 2029, we have clearly identified areas of focus and several drivers that will allow us to drive further growth and margin expansion at a 70 to 170 basis point level. First on seasonality. We are about a year into this initiative. And as Greg talked about, we have achieved a meaningful year-on-year improvement in the first quarter of 2026. We continue to be focused on securing customers and work that is less impacted by weather in the first quarter. The ultimate goal, as we've consistently said, is to achieve consistent profitability in the first quarter when compared to the remaining 9 months of the year. Next, our overall margin profile will improve as our mix shifts over the next few years towards higher-margin bid work. Lastly, we see margin improvement from operational excellence program we have launched, increased pricing power, be more selective on projects as well as the work that is advanced on fleet efficiency. We are already excited about the operational excellence opportunity and believe it offers upside potential. Operational excellence involves dissecting each job and identifying components that perform well and an appropriate margins and identify those components that we don't perform well and under deliver on margin. This level of performance attribution analysis will allow us to make informed decisions moving forward. In some cases, certain aspects of the job might always underperform, and we should look to subcontract the work or increase our pricing or in some cases, we might have inconsistent margin delivery across different locations of the operations. In this case, we can assess what's causing the underperformance and quickly apply lessons learned to improve. We have well advanced this granular analysis and expect the benefits to accrue over the coming months and years. Moving to Slide 22. Here, for the first time, I guess, we present the long-term financial targets for Centuri. In addition to the top line growth and the margin improvements I talked about, we expect significant growth in earnings over the next few years. From a bottom line perspective, adjusted EPS is expected to grow at a compounded annual growth rate of 30% to 45% through 2029. We expect our net debt to adjusted EBITDA to be around 2x by year-end '26, and we anticipate keeping year-end leverage below 2x thereafter. This plan is also achieved with no equity issuances pursued over the forecasted period. Lastly, we expect a meaningful improvement in our free cash flow conversion over the next few years. This will be fueled by lower interest expense, the shift to more bid work, fleet leasing, capital efficiency and working capital efforts aimed at reducing our DSO. We expect to reach a free cash flow conversion rate of between 40% and 50% by 2029. I'll conclude on Slide 23. Centuri is well positioned today. We have the scale, the capabilities and talent across gas and electric to execute. We have long-term and deep customer relationships with end market tailwinds, and we have a leadership team fully aligned and committed to the long Centuri vision. Our strategy is conservative, but built for long-term success. It is anchored in staying true to who we are and what we do best, and it will deliver top-tier growth while maintaining a low-risk profile. We are all in Centuri extremely excited about our path forward and delivering value for our shareholders. I thank everybody for dialing in and listening to us today. And operator, I think we're ready to open up the call to any questions that people dialing in may have.

Your first question comes from the line of Joe O'Dea with Wells Fargo.

Chris, I appreciate all the details on the strategic vision. I got one short-term and one longer-term question. I'll start on the shorter-term side. So just in terms of the revenue strength that we saw in the quarter and demand strength with revenue up 31% and book-to-bill at 1.8, and I think with no raise in the revenue guidance for the year, just any color on how you're thinking about Q2 revenue growth, details on the gas and electric side as we think about kind of rest of the year tracking after Q1 strength?

Yes. I wouldn't read into just reaffirming guidance and no change to guidance. There's anything other than the conservatism that we run the business. Look, we're a quarter in first quarter beat what we expected internally from both the revenue. All businesses in the first quarter beat their budgeted EBIT margins and EBITDA margins and performed exceptionally well. So I wouldn't read into the fact we didn't break guidance in the first quarter of anything other than we're just conservative, and we'll be that way. As I look forward to the remainder of the year, let's just deal with bookings first. We've reiterated we think the book-to-bill will be in the region of 1.1 to 1.2. There's every indication that, that is a really solid number for us. The end markets are supporting the amount of bid work and Greg referred to some of it when he spoke earlier. We've got about and a little bit more than that actually bid work ongoing and our win rates are holding nicely. So I think it's fair to say that we have good confidence in continuing to build the backlog through the rest of the year and achieving the book-to-bill margins. I'd also talk about the coverage for the year, and I think most on the call will know what I mean by coverage. It is sort of backlog under contract, the bid work that we're targeting adjusted to what our current win rates are and the confidence level we've got. I think Slide 9 shows it quite well in the quarter deck. We've got almost all of the midpoint guidance under contract, and we've got upside. We've got further bid work, which we anticipate booking in the next few weeks that will take us to the upper end. So we feel really confident not only the ability to do well against the guidance, we also see a positive momentum in the margins as well as you've seen in the first quarter results. So I guess to recap I'd say the conservatism in us is the reason that we didn't increase guidance. We did reaffirm it. I would look to various points in the deck that should indicate where we feel we are in the year, which is very strong bookings, a continued emphasis on booking more work to build backlog. You see margin improvements from a year ago of 7% trailing 12 months to now 8%. I think what gets lost is the seasonality aspect of our business. You can't look at the business in a sequential quarter basis. You've got to look at it Q1 last year to Q1 this year, and you've seen 30% growth in revenue. We have seen that in the gas seasonality, and you've seen gross margins go from sort of 2.7% to 4.1%. So overall, it's really good, and we feel good about the rest of the year.

I appreciate all those details. And then just on the longer-term side of things and the 2029 targets, when we think about really good base growth on revenue, 10% to 15% CAGR that you've got out there, the adjusted EBITDA CAGR, 9% to 17%. And so just the question in terms of why not greater opportunities for operating leverage? I think you've talked about the fleet strategy and owned versus lease as a near-term headwind, but efficiency opportunities to offset that. And so we would think that there's some operating leverage opportunity within that 10% to 15% base growth.

Yes, there is. I mean, look, we took a while -- I mean I just go back to the basic principles, we took a while to get our organization to work as one having been led as a subsidiary of the utility in an OpCo environment. So this exercise to pull the strategy together has been as much about change as it has been delivering a long-term strategy. What I will tell you is everything that we communicate is well backed by fact, alignment and data. So the numbers you see in the deck here are things that I can and my team and more broadly across the business have a plan around to understand and know how to get there. So there's an element of conservatism in what we produced. So specific to your question, of course, we are very much focused on doing better than you see there. There is absolute desire to do better than that, but we wanted to be sure that we have a long-range plan, long-range targets, confirming that we are sticking to the knitting. We're not adding any more risk into the business that we know when we make the commitments we can deliver. And I will be challenged about the conservatism and I look with that every day, but we feel good about what we've published. You can go from top to bottom in this organization and our team is aligned that this is very well achievable. But you can also take from us wherever there's other opportunity to grow margin expansion or to do more work at higher margins or to be more efficient, we will.

Your next question comes from the line of Manish Somaiya with Cantor Fitzgerald.

I just wanted to go back to Chris, Q1, which, in your words, was a strong quarter. Obviously, I appreciate the long-term agenda that you put out. But I'm just trying to understand the disconnect perhaps based on what you're saying and how the market is looking at it with the stock down 15%. And again, I just want to hear it from you in terms of what the market might be missing, which clearly is not something that's being digested. So I would appreciate your thoughts on that. And then I did have one other question.

I deliberately haven't looked at where the share price is this morning. But let me answer your question hopefully a complete way. We have a budget that we developed for 2026. That budget guides the midpoint, which we've communicated to the outside world. We set a target for the first quarter, which was to grow at least 10% and to mitigate some of the seasonality and improve margins. We just closed the first quarter, which not only includes the results of the first quarter, but the forecast for the full year. I compare that to what drove our budget process and I compare the absolute results to where we are in our forecast. And as I said in my earlier comment, every one of our operating businesses, whether that be nonunion electric, Union Electric, Canada Oil and Gas has to beat the budget, every one of them when it comes to revenue and profitability. We are 35% -- excuse me, 30% on the revenue base. Everybody in this on the revenue base, but more importantly, the gas business is up $80 million and it delivered $80 million of growth at 10% margin. We reduced the loss from 15% down to 6%. So I would say this is a strong operating quarter, it met every expectation internally. Every forecast that we have taken out of our monthly reviews, and we're only just looking at April confirms that we continue to deliver on our expectations. I can't explain what's getting lost with the outside world. I think some of it may be that people look at our business on a pure sequential basis and neglect the fact that we've got a massive seasonal impact that happens in the first quarter. I think that might be it. But I also -- I just believe that the business has maintained and stuck to what we said we were going to do. I just don't think that's always translated into what people write about us.

And then I just wanted to go back to the bookings. I know in the past, we've talked about the $13 billion opportunity pipeline, $1.4 billion of data center-related work. And then I think Greg alluded to the $2 billion in earlier stage opportunities. How soon can we get some more sort of completeness around actually formalizing some of those orders? Because we've been kind of hearing about this for some time. So I'm just trying to get a sense as to how we can sort of get more comfortable with the pipeline and the prospects that you see.

Yes. I'll talk a couple of things about it, Manish. That's a fair question. I think our book to bill, I think Greg said $170 million. And so we have we have found and we've been able to book and bill and collect cash on between $170 million and $200 million of revenue so far. We have been very selective and I will repeat what I think I said on prior calls to many people. Data centers are just one of our many customers. And our real challenge here is to make sure that we focus on those data center customers that have got capital that is deployed. We like the stuff to work. It's consistent with our capabilities and that we've got a contracting format allows us to deliver higher margins. And sometimes it's not always clear to see what is happening with the data center value chain. But what I will tell you is we've got close to $300 million, give or take of data center work that we believe we have been selected and are currently negotiating. So that should be in the next quarter, Manish. The next quarter being Q2, to be precise.

Your next question comes from the line of Justin Hauke with Robert W. Baird.

I wanted to clarify on the 10% to 15% base revenue growth forecast that you have through 2029. It's not totally clear -- does that include M&A in it or not? Because you have Slide 14 that kind of shows like there's an M&A piece, but then Slide 20, at segment level, you're saying that it doesn't include it.

Let me just give you clarity. If you look at Slide 14 on the strategy deck, I apologize if I jumped in. And I reiterate the words conservative. The base revenue growth organically is about 12%, which is higher than what we previously communicated at 10%. And the M&A component that's gone into our modeling is [ 73% ]

Okay. All right. Got it. And so I guess if I was doing the math on your free cash flow conversion of EBITDA, it looks like it would bring your leverage lower than kind of your target over the time line. So I'm assuming that, that's capital that you anticipate kind of redeploying into M&A to drive that 3% in the algorithm.

You've got it absolutely right. And I stress what I alluded to in the slide deck, and then I'll let Greg chime in a second. But this is a self-sustaining plan to 2029. So we don't need to issue equity, but there will be an allocation of capital in really 2 areas -- 3 areas. First of all, we've got to fund organic growth. Secondly, we've assumed we will do 3 possibly 4 tuck-in acquisitions over the planning period. And then we want to take the debt below the 2 mark. That's it. It's that simple.

Yes. Okay. All right. My other one, I just wanted to understand, we've talked a lot about the revenue conservatism, but I'm a little confused, too, on the book-to-bill, the 1.1 to 1.2 that you've maintained for the year. Just given that you did 1.8 here in the first quarter, 1.5 on a trailing 12-month basis and all the opportunity that you guys have kind of laid out that you expect. So I guess I'm just trying to understand why because mathematically, that would assume sub 1 for the rest of the year. So I just wanted to understand that disconnect a little bit. I don't know maybe it's the same conservatism as the revenue side.

I wish it was a finite science just to roll out 12 months, 52 weeks and the book-to-bill isn't. What I will tell you is, yes, there's some conservatism. I will commit to something we can just try. And every bit of data internally, as you know, data is confirming we're going to be in that range. I think immediately, Q2 will be just a little slower than the rest of the year, then it will pick up. And that's just part of the timing on the awards. We've got a couple of that awards, I think, at the end of Q3, beginning of Q4. But what I will also tell you, and I refer to Slide 9 in the deck for the overall quarter, we're not out bidding work for this year. We pretty much have got this year's budget business to deliver on the commitment both to our business as well as our shareholders. What we're looking at now is work that allows us to improve margins for this year and building back for '27. So yes, conservatism. I'd just remind you that we've got ample work book for '26. So we're trying to find those opportunities that bring margin improvement for this year, but more importantly, building a bigger platform going into next year 2027, so that we can be -- we can meet or beat what we've laid out in the strategy deck.

The next question comes from the line of Sangita Jain with KeyBanc Capital Markets.

So if I can ask one from each deck. From your earnings deck, I just want to kind of get some additional color on the pipeline, which seems to have stayed at $13 billion. So I just want to see what moved in, what moved out. And it also seems to have moved a little bit more towards gas from electric. So any color on what you may have added in gas and what may have come out of electric? And I have a follow-up.

Let me just talk about the dynamic in the pipeline. I care about quality in the pipeline, not necessarily quantity. We've booked in the last sort of 15 months close to just over $6 billion of work, which means we've clearly bid a lot more work than that because we don't win everything we bid, yet the pipeline has stayed flat. I mean that's a pretty good achievement, frankly. I feel as though the pipeline is of high quality, is very, very, very sustainable. We can add quantity into the pipeline. I just don't think we need to. I think we're very much focused on quality of opportunity in the pipeline that drives higher margins this year and build quality going into 2027. I wouldn't read anything into the mix, Sangita, about gas and electric. As I said in my commentary, I think inevitably, the gas market grows at a slightly slower pace than the electric markets where we play. I'm quite pleased that we're about 50-50 in the mix. As long as it's 50-50, 48-52 or the other way, I'm not worried about it, quite frankly. If you go back a year to my first quarter last year, most of what we were booking was gas related, and that was driven by MSAs and the push to have more backlog for seasonality. If you look at the latter part of last year into the first quarter this year, most of the bookings are on the electrical side. So the takeaway is that I'm not concerned of the size of the pipeline. Bear in mind, we've already booked $6 billion in the first 15 months and completely replenish that. The pipeline has held well at $13 billion. I'm also not worried that we've got a mix of more electric than gas. I think that just is consistent not only with the way our customers award work, but also where the market opportunity growth is. And I think I said in my strategy, I would anticipate that bookings in electrical will outpace those in gas, just purely driven by the market opportunity.

And then one on your strategy deck. You talked about $550 million of potential M&A in your 2029 outlook on Slide 14. I kind of just want to get a sense of the size of -- like should we think of the average size as being similar to the one you did in Canada recently? Or are you contemplating larger M&A to make up for that $550 million?

I'll restate we see the M&A funded by the existence of the balance sheet without doing any equity offering. And I think we believe we've got line of sight on some already, but they'll all be within the range of Connect but less than about $100 million of revenue.

Your next question comes from the line of Avinatan Jaroslawicz with UBS.

So just on the margins in non-union electric in Q1, you noted that the new MSA that you're ramping up on was a drag in the quarter, but expect margins on that to improve throughout the year. I just want to understand, is that going to be a margin drag throughout the rest of the year? Or are you thinking that it should get up to segment level margins by sometime before the end of the year?

No. It's not a long-term issue at all. In fact, when we look at March and we look at some preliminary data from April already, we've already recovered where we think we should be and with some upside throughout the remainder of the year. So it is limited to earlier in the first quarter, just given the ramp-up after the holidays and some other things. So nothing of a long-term impact.

Okay. Got it. And just staying on the margins in that segment. Can you help us understand just why the storm work that you did there in the quarter came in at seasonally lower margin than it did last year. I noted that work for on-system customers came in, yes, lower margin. Was that more about like favorable rates for those customers or anything related to execution there?

Nothing about execution. I think it's just the reality that not all storm work comes at the same margin. It's something we've talked about in the past. When we do on system storm work, generally, the margins are lower than if we're able to travel or take crews from the Southeast and go to the Northeast or hurricanes where we work a little bit longer. It's just the makeup of the storm and when it occurs, if we're able to work over the weekend, our margins are a little bit greater than when we're working and replacing it with base work during the week. So there's a number of different factors. Regardless of the factors or the specifics, margin on storm work is greater than base work. How much greater kind of depends on the other variables that I just mentioned.

Your next question comes from the line of Sherif El-Sabbahy with Bank of America.

Just starting off, I wanted to touch on the quarter. The use of cash for free cash flow picked up this year versus last. Could you touch on what drove the use of cash?

Yes. It's just some timing and changes in working capital, and we grew our revenue over $150 million year-over-year. And obviously, there's an investment that we need to make and that will kind of unwind over the remainder of the year. We're still very confident that we'll see $60 million of free cash flow for the year, which is what we said back in February, and we remain very confident in that.

And then just looking at the bid work, it seems like the average sizes are picking up $3.9 million this quarter, $3.8 million in the last and $3.2 million the quarter before. Is it fair to say bid work projects on average are getting larger over time just given the scale of the build-out utilities are faced with? And then could you also just remind us of the average project size for MSA work?

Yes. From a bid perspective, yes, I guess there is a small increase quarter-over-quarter, but nothing is changing from the scope of work that we're doing, the size -- the type of work we're doing. Nothing is changing from the details. But yes, I guess it is upticking a little bit. I think as we continue to see increased opportunity on the bid side, and we'll continue to grow that part of our portfolio, you might see a bit of increase. But on average, it's still $4 million, and that's a pretty comfortable number for us. From an MSA perspective, we're still in that $50,000 to $75,000 per work order range, whether it's gas or electric, no material changes from that perspective.

There's no shift, and I try to say it, Sherif, in my words. We're going to continue to stick to the knitting as we go through '29. I think the average contract size will still very small, probably less than $5 million is what we're projecting. MSAs don't change that materially. So the average contract size will be less than $100,000. What you'll see change is just the amount of bid work as a percentage of revenue going to that 65% and 35% bid work. But the overall concept of the business, the structure of it, the revenue streams and more importantly, the risk profile just won't change materially at all.

Understood. And looking at those long-term targets, as you highlighted, a big pickup in bid work, but still sort of in the 50-50 electric gas mix. Is that just driven by the fact that, again, there's that large-scale build-out needed by utilities. And so the opportunities in front of you are just for those somewhat larger projects versus sort of the day-to-day MSA work?

Yes. MSA, it's not science. I mean we've got customers that bid work to us and then choose to roll it into an MSA. And I think the MSA work is just generally by intent, grow year-over-year at a slower rate than bid work. MSA is a slower moving machine versus the bid cycle. So I think I wouldn't read a lot into the rates than they just reflect the rate that we will grow in the market we're currently in. But 50-50 on electric I will tell you will swing a little bit. It not only is it somewhat seasonal, as I referred to a question that Sangita asked, I mean, early last year, most of the bookings were driven by the gas business yet late in the year and early this year were electric driven. That's just a customer thing. It's nothing more than that. I would say there is definitely a drive we hear from our customers, they want us to deliver services on the transmission side, electrical. So there will be absolutely a push to find more opportunities that we convert into bids and wins and backlog. But I wouldn't expect a violent shift in mix of gas and electric in the pipeline or in the backlog. You just won't see it. It's pretty steady.

And then just with that bid work mix shift, does that change your exposure to heavier transmission versus distribution? Anything on that front of the type of work that's going into that?

No. Look, we've done electrical transmission work, we've done -- we do about 10% of revenue less than that each year in transmission work. We do a lot more distribution work. If I look at the end markets and I look at the customers, what they're saying to us and the opportunity, and I referred to an award we've got in Florida, customers want us to do more small transmission projects. And those transmission projects may have a few miles of cable in the ground, they have substation attached to it, may have battery energy storage cost to a mix of things. And they fit our scope of work really well. So I think the margins are a little better on the transmission work because we have slightly larger contracts. I think the scope of work is more integrated, which sits us well. I think the competitive forces for those probably play well to where we sit versus trying to bid against large, large contracts, which we're not equipped to do.

Your next question comes from the line of Manish Somaiya with Cantor Fitzgerald.

I had one question on the '25 to '29 targets. You have 10% to 15% CAGR for base revenue growth, 12% to 19% for base gross profit. I'm not sure why the adjusted EBITDA CAGR is 9% to 17%. Why isn't it at least in line or higher than the gross profit CAGR? And then secondly, I know we just talked about backlog, Chris. But if you can also just help us understand the visibility that you have into '27. I think you mentioned '26 is pretty much kind of sold out for the most part. Maybe if you can just help us understand what that visibility picture looks like for '27.

Absolutely, Manish. I will let Greg talk about the margins because that's a really important point. I think it does get missed by the outside world. So he will take margin and then I'll take the backlog.

Yes. Thanks for the follow-up question. I think when you're reconciling and going from gross profit to adjusted EBITDA, one of the key characteristics of this model is the continuation of what we started late last year around our capital efficiency and purchasing and buying a more balanced amount of our fleet. So 50% buy, 50% leased. As that kind of compounds over the 5-year period, there is a bit of a headwind on margin when you get to EBITDA, not as much when you get to gross profit. Offsetting that is the scale that we're getting on a G&A perspective as a percent of revenue. So there is some partial offset. But net-net, there is a bit of a headwind just from the leasing impact. Obviously, you get that benefit on free cash flow, that's allowing us to reinvest it in the business and look at opportunities for tuck-ins and such like that.

Manish, on the backlog question, let's just close out '26 comment first. I think Slide 9 in the deck that shows the histogram there and the coverage. I'm talking about the quarter deck strategy deck. I think you can read that literally. We kind of got the midpoint and trending towards the upper end of the guidance, close to sort of $3.5 billion, $3.6 billion. And you can do the math. I mean it adds to it other than what we see within our pipeline is where we currently think we'll be during 2026, which, as you know, from last year is up from 3% to what you see in that chart, so somewhere between 15% and 18%. When I look to 27%, which is kind of where the focus on BD is at the moment, Manish, I don't see any negative trends in the market around bookings that we will have this year that will feed next year's backlog and coverage. A little rule of thumb, I will tell you, even though the data was a little bit -- was not as developed as it is now, but if you go back 12 months ago when we were looking at the end of the first quarter to '26, I think we were about $1.8 billion of revenue -- sorry, if you go back to '25 first quarter, we're about $1.8 billion, give or take of coverage backlog rather going into '26. We've got about 35% more this time looking into '27 at this time of year. So the trends are all positive. I don't see any concern that we won't meet our bookings and our ultimate coverage going into next year.

We have no further questions at this time. I would now like to turn the call back over to Nate Tetlow for closing remarks.

Great. Thanks, Liz. Thank you, everyone, for participating today and all of your questions. And please feel free to reach out to myself if you have further questions. Thank you. That concludes the call.

Ladies and gentlemen, that does conclude today's call. Thank you all for joining. You may now disconnect.